Howes: As GM gains credibility, shares find market mojo
Wall Street’s negative tide on General Motors Co. finally may be turning.
For most of the eight years since Detroit’s No. 1 automaker emerged from federally induced bankruptcy, shares in GM traded in a narrow range bounding its 2010 initial public offering price of $33. Despite several years of record profitability, they opened this year at $35.99.
Moving that price higher — by regaining credibility with wary investors and making smart bets on the mobility future — is a cornerstone of Chairman Mary Barra’s push to make GM the industry’s most valuable automaker. The target remains, mathematically speaking, far off.
Still, GM is starting to get credit for three things, judging by a run-up in its shares this year that crosstown rival Ford Motor Co. has yet to see: a continuing restructuring focused on building long-term shareholder value, and exiting low-margin businesses that consume capital and deliver meager profits, if any.
And, third, a fast-developing strategy to deliver electric self-driving vehicles and mobility services to the world’s leading markets (China and the United States) that may be a smarter bet — and may hit those markets sooner — than many of GM’s rivals, including Silicon Valley darling Tesla Inc.
“We continue to be surprised by the performance of GM’s autonomous vehicle unit,” UBS analyst Colin Langan wrote this week in a note to clients, predicting GM shares are on track to hit $50. “It’s doubling its AV fleet and expects to accumulate more than 1 million miles per month by 2018, giving them a competitive edge.”
The realization that the so-called “New GM” actually may be for real is starting to dawn on analysts and investors paid to be skeptical, to ask hard questions and to be smart. GM shares are up 25 percent so far this year, closing Thursday at $44.89, and Deutsche Bank predicts shares could soon hit $51 apiece.
Making hard calls helps. On Thursday, GM idled production of a car plant because demand for the sedans it builds at Detroit-Hamtramck Assembly is plummeting amid strong sales for pickups and SUVs. That’s nuts-and-bolts recognition that comparatively low gas prices and expanded offerings in trucks and SUVs are fundamentally reshaping the U.S. market.
GM is breaking with its be-all-things-to-all-people past. It bolted Russia, a market it carefully cultivated in the late 1990s and early 2000s; ended production in Australia, left South Africa and exited India, on track to be the world’s No. 2 market; sold its European operations, including its Opel and Vauxhall brands, to PSA Groupe SA of France.
Its reinvestment in Cadillac, coupled with the move to a new headquarters in New York’s SoHo neighborhood, effectively creates a platform to showcase self-driving technologies on pricier models its customers could afford. It also positions the luxury brand for a partial spin-off that could be equal parts premium auto and autonomous vehicle play.
GM’s “shared mobility” strategy, exemplified by its Maven car-sharing business and its stake in Lyft Technologies Inc., continues to make progress. Its OnStar system already is connected to 12 million vehicles. And its investment in Cruise Automation, a self-driving start-up, is accelerating its bid to be first to market with autonomous vehicles GM builds itself.
And the automaker’s North American body-on-frame SUV business, chiefly its Suburban, Tahoe and Yukon, coupled with its full-size pickup business, accounts for $33 per share of GM’s market value, Morgan Stanley said in a recent “sum-of-the-parts” evaluation.
Add Barra & Co.’s bias for growing profitability over defending market share — a reversal of the Old GM value system — and investors are beginning to see a company that could be far more capable of creating value than competitors controlled by industrial families (think Ford, Fiat Chrysler’s Agnellis or BMW’s Quandts) or government (Volkswagen and Germany’s state of Lower Saxony).
“We believe GM’s shareholder structure (its lack of a government, family or strategic blocking minority) is unique among the global auto industry and makes the topic of strategic alternatives a potentially more relevant consideration for management or the board,” Morgan Stanley wrote last month.
More, it’s a company less burdened by its historical anchors and more motivated by the huge, costly mistakes of its past. And driven by the need to prove something — to competitors, to skeptics and to itself.
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.